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Tuesday, September 23, 2014

TODAY’S STUDY: WHERE OFFSHORE WIND IS IN THE WORLD

Michael Hahn, Patrick Gilman, August 27, 2014 (Navigant Research for the U.S. Department of Energy)

Executive Summary

The U.S. offshore wind industry is transitioning from early development to demonstration of
commercial viability. While there are no commercial-scale projects in operation, there are 14 U.S. projects
in advanced development, defined as having either been awarded a lease, conducted baseline or
geophysical studies, or obtained a power purchase agreement (PPA). There are panels or task forces in
place in at least 14 states to engage stakeholders to identify constraints and sites for offshore wind. U.S.
policymakers are beginning to follow the examples in Europe that have proven successful in stimulating
offshore wind technological advancement, project deployment, and job creation.

There are approximately 7 gigawatts (GW) of offshore wind installed worldwide. The majority of this
activity continues to center on northwestern Europe, but development in China is progressing as well. In
2013, more than 1,700 megawatts (MW) of wind power capacity was added globally, with the United
Kingdom alone accounting for 812 MW (47%) of new capacity. In total, capacity additions in 2013
showed a roughly 50 percent increase over 2012, finally surpassing the pace of installations achieved in
2010. It appears that near-term growth will continue, with more than 6,600 MW of offshore wind under
construction in 29 projects globally, including 1,000 MW in China. While this upward trend is
encouraging, uncertain political support for offshore wind in European nations and the challenges of
bringing down costs means that the pace of capacity growth may level off in the next two years.

Since the last edition of this report, the U.S. offshore wind market has made incremental but notable
progress toward the completion of its first commercial-scale projects. Two of the United States’ most
advanced projects – Cape Wind and Deepwater’s Block Island project – have moved into their initial
stages of construction. In addition, continued progress with the Bureau of Ocean Energy Management
(BOEM) commercial lease auctions for federal Wind Energy Areas (WEAs) has contributed to more
projects moving into advanced stages of development. In total, 14 U.S. projects, representing
approximately 4.9 GW of potential capacity, can now be considered in advanced stages.
1 A map showing
the announced locations and capacities of these advanced-stage projects appears in Figure ES-1.

On the demonstration project front, the DOE announced continued funding for Offshore Wind
Advanced Technology Demonstration (ATD) to three projects in May 2014. Fishermen’s Energy,
Dominion, and Principle Power were each selected for up to $46.7 million in federal funds for final
design and construction of pilot projects off New Jersey, Virginia and Oregon, respectively, from an
original group of seven projects that were selected in 2012. Two of the other original seven, the
University of Maine and the Lake Erie Economic Development Company of Ohio, will receive a few
million each, under separate awards, to continue the engineering designs of their proposed pilot
projects.

Overall, offshore wind power project costs may be stabilizing somewhat compared to their recent
upward trend. Notably, for those projects installed in 2013 for which data were available, the average
reported capital cost was $5,187/kW, compared to $5,385/kW for projects completed in 2012. While it
appears that the stabilizing trend may continue for projects completed in 2014, a lack of data for projects
anticipated to reach completion in 2015 and 2016 makes it difficult to assess whether the trend will
continue. Note that all such capital cost data are self-reported by project developers and are not available
for all projects globally; therefore, it may not be fully representative of market trends.

Globally, offshore wind projects continue to trend farther from shore into increasingly deeper waters;
parallel increases in turbine sizes and hub heights are contributing to higher reported capacity
factors. While the trend toward greater distances helps reduce visual impacts and public opposition to
offshore wind, it also requires advancements in foundation technologies and affects the logistics and
costs of installation and maintenance. On the positive side, the trend toward higher-capacity machines
combines with increasing hub heights and rotor diameters to allow projects to improve energy capture
by taking better advantage of higher wind speeds.

The average nameplate capacity of offshore wind turbines jumped substantially from 2010 to 2011 as
projects increasingly deployed 3.6 MW and 5 MW turbines. Since then, however, average turbine size
has plateaued around 4 MW. This leveling off of average turbine size will likely continue over the next
two years as previously ordered 3.6 MW machines are deployed and Asian manufacturers work to catch
up with their European counterparts. The upward trend in average turbine sizes will likely resume
toward 2018 as developers begin deploying more 5.0 MW and larger turbines. The average turbine size
for advanced-stage projects in the United States is expected to range between 5.0 and 5.3 MW, indicating
that U.S. projects will likely utilize larger offshore turbines rather than smaller turbines that have
previously been installed in European waters.

The shift to more distant locations and larger capacity turbines, along with a desire to minimize tower
top mass, has driven continued innovation in drivetrain configurations; however, the majority of
installed turbines continue to use conventional drivetrain designs. Other configurations, such as
direct-drive and medium-speed drivetrains, have been limited to a combined 3 percent market share of
cumulative installed capacity. Deployment of turbines with alternative drivetrain configurations will
likely increase significantly over the next several years, as the new 5 to 8 MW class turbine models from
Siemens, Vestas, Areva, Alstom, and Mitsubishi are installed at commercial projects.

The past year has seen a continued trend for substructure design innovations, as the challenges of
installing larger turbines, siting projects in deeper waters, and the need to reduce installed costs
persist. While much of the focus in recent years has been on alternatives to the conventional monopile
approach (due to various limitations), the advent of the extra-large (XL) monopile (suitable to a 45 m
water depth) may have somewhat lessened the impetus for significant change.
Regardless, the optimal
type of substructure (and the potential for innovation) is largely driven by site-specific factors, and
plenty of opportunity remains for new designs that can address developers’ unique combinations of
needs. In the near-term, monopiles will continue to comprise the majority of new installations, with
multi-pile (jacket and tripod) designs showing notable increases. In addition, the industry continues to
explore the potential for floating foundations, with several demonstration-scale projects currently
operating and additional installations planned.

U.S. offshore wind development faces significant challenges: (1) the cost competitiveness of offshore
wind energy;2
(2) a lack of infrastructure such as offshore transmission and purpose-built ports and
vessels; and (3) uncertain and lengthy regulatory processes. Various U.S. states, the U.S. federal
government, and European countries have used a variety of policies to address each of these barriers
with varying success.

For the U.S. to maximize offshore wind development, the most critical need continues to be
stimulation of demand through addressing cost competitiveness and providing policy certainty. Key
federal policies expired for projects that did not start construction by year-end 2013: the Renewable
Electricity Production Tax Credit (PTC), the Business Energy Investment Tax Credit (ITC), and the 50
percent first-year bonus depreciation allowance. However, the Senate Finance Committee recently
passed an extension of both of the PTC and ITC through 2015, maintaining the same new definition of
commencing construction, as part of a comprehensive tax extenders bill covering 51 other industries and
there is some chance that the full Senate and House will adopt this before the end of 2014.

Furthermore, the DOE announced three projects that will each receive up to $47 million to complete
engineering and construction as the second phase of the Offshore Wind Advanced Technology
Demonstration Program. On the state level, Maryland began promulgating rules for Offshore Renewable
Energy Credits (ORECs) for up to 200 MW, and the Maine Public Utility Commission approved a term
sheet with a team led by the University of Maine for a pilot floating wind turbine project.
Increased infrastructure is necessary to allow demand to be filled. Examples of transmission policies
that can be implemented in the short term with relatively little effort are to designate offshore wind
energy resources zones for targeted offshore grid investments, establish cost allocation and recovery
mechanisms for transmission interconnections, and promote utilization of existing transmission capacity
reservations to integrate offshore wind. In 2014, there were few tangible milestones in this area, although long-term plans for offshore transmission projects such as the Atlantic Wind Connection and
the New Jersey Energy Link progressed steadily in their development efforts.
Regulatory policies cover three general categories: (a) policies that define the process of obtaining site
leases; (b) policies that define the environmental, permitting processes; and (c) policies that regulate
environmental and safety compliance of plants in operation. In 2014, the U.S. Bureau of Ocean Energy
Management (BOEM) announced additional competitive lease sales for renewable energy off
Massachusetts, Maryland and New Jersey.

Our estimated installed costs have dropped 6% since our 2011 work. This is driven by: new data from
European projects, revised design assumptions and more refined estimates from U.S. projects in
planning stages. Expected installed costs for a 500 MW farm are $2.86 Billion or $5,700/kW.

Current U.S. employment levels could be between 550 and 4,600 full-time equivalents (FTEs), and
current investment could be between $146 million and $1.1 billion. The ranges are driven by
Navigant’s uncertainty about from where advanced-stage projects are sourcing components. As the
advanced-stage projects start construction, employment levels will likely double or triple to support
equipment transport and installation.

The development of an offshore wind industry in the U.S. will depend on the evolution of other
sectors in the economy. Factors within the power sector, such as the capacity or price of competing
power generation technologies, will affect the demand for offshore wind. Factors within industries that
compete with offshore wind for resources (e.g., oil and gas, construction, and manufacturing) will affect
the price of offshore wind power.

Factors in the power sector that will have the largest impact include natural gas prices and the change
in coal-based generation capacity. As electricity prices have historically been linked to natural gas
prices, a decrease in prices of the latter can lead to a decrease in the price of the former.
Natural gas
prices declined from above $4 per million British thermal units (MMbtu) in August 2011 to below
$2/MMbtu in April 2012, largely due to the supply of low-cost gas from the Marcellus Shale. Lower
resulting electricity prices can make investment in other power generation sources such as offshore wind
less economically attractive. However, natural gas prices have been rising steadily since then and have
remained above $4/MMbtu since late 2013 with periods exceeding $6/MMbtu3 and may continue to rise
with three new liquefied natural gas export terminals recently approved.

In terms of coal, Navigant analysis reveals executed and planned coal plant retirements through 2020 of
nearly 40 GW. As this capacity is removed from the U.S. electric generation base, it will need to be
replaced by other power generation resources, including but not limited to natural gas and offshore wind. As such, continued coal plant retirements could increase the demand for offshore wind plants in
the United States.

Review of OIL IN THEIR BLOOD, The American Decades by Mark S. Friedman

OIL IN THEIR BLOOD, The American Decades, the second volume of Herman K. Trabish’s retelling of oil’s history in fiction, picks up where the first book in the series, OIL IN THEIR BLOOD, The Story of Our Addiction, left off. The new book is an engrossing, informative and entertaining tale of the Roaring 20s, World War II and the Cold War. You don’t have to know anything about the first historical fiction’s adventures set between the Civil War, when oil became a major commodity, and World War I, when it became a vital commodity, to enjoy this new chronicle of the U.S. emergence as a world superpower and a world oil power.

As the new book opens, Lefash, a minor character in the first book, witnesses the role Big Oil played in designing the post-Great War world at the Paris Peace Conference of 1919. Unjustly implicated in a murder perpetrated by Big Oil agents, LeFash takes the name Livingstone and flees to the U.S. to clear himself. Livingstone’s quest leads him through Babe Ruth’s New York City and Al Capone’s Chicago into oil boom Oklahoma. Stymied by oil and circumstance, Livingstone marries, has a son and eventually, surprisingly, resolves his grievances with the murderer and with oil.

In the new novel’s second episode the oil-and-auto-industry dynasty from the first book re-emerges in the charismatic person of Victoria Wade Bridger, “the woman everybody loved.” Victoria meets Saudi dynasty founder Ibn Saud, spies for the State Department in the Vichy embassy in Washington, D.C., and – for profound and moving personal reasons – accepts a mission into the heart of Nazi-occupied Eastern Europe. Underlying all Victoria’s travels is the struggle between the allies and axis for control of the crucial oil resources that drove World War II.

As the Cold War begins, the novel’s third episode recounts the historic 1951 moment when Britain’s MI-6 handed off its operations in Iran to the CIA, marking the end to Britain’s dark manipulations and the beginning of the same work by the CIA. But in Trabish’s telling, the covert overthrow of Mossadeq in favor of the ill-fated Shah becomes a compelling romance and a melodramatic homage to the iconic “Casablanca” of Bogart and Bergman.

Monty Livingstone, veteran of an oil field youth, European WWII combat and a star-crossed post-war Berlin affair with a Russian female soldier, comes to 1951 Iran working for a U.S. oil company. He re-encounters his lost Russian love, now a Soviet agent helping prop up Mossadeq and extend Mother Russia’s Iranian oil ambitions. The reunited lovers are caught in a web of political, religious and Cold War forces until oil and power merge to restore the Shah to his future fate. The romance ends satisfyingly, America and the Soviet Union are the only forces left on the world stage and ambiguity is resolved with the answer so many of Trabish’s characters ultimately turn to: Oil.

Commenting on a recent National Petroleum Council report calling for government subsidies of the fossil fuels industries, a distinguished scholar said, “It appears that the whole report buys these dubious arguments that the consumer of energy is somehow stupid about energy…” Trabish’s great and important accomplishment is that you cannot read his emotionally engaging and informative tall tales and remain that stupid energy consumer. With our world rushing headlong toward Peak Oil and epic climate change, the OIL IN THEIR BLOOD series is a timely service as well as a consummate literary performance.

Review of OIL IN THEIR BLOOD, The Story of Our Addiction by Mark S. Friedman

"...ours is a culture of energy illiterates." (Paul Roberts, THE END OF OIL)

OIL IN THEIR BLOOD, a superb new historical fiction by Herman K. Trabish, addresses our energy illiteracy by putting the development of our addiction into a story about real people, giving readers a chance to think about how our addiction happened. Trabish's style is fine, straightforward storytelling and he tells his stories through his characters.

The book is the answer an oil family's matriarch gives to an interviewer who asks her to pass judgment on the industry. Like history itself, it is easier to tell stories about the oil industry than to judge it. She and Trabish let readers come to their own conclusions.

She begins by telling the story of her parents in post-Civil War western Pennsylvania, when oil became big business. This part of the story is like a John Ford western and its characters are classic American melodramatic heroes, heroines and villains.

In Part II, the matriarch tells the tragic story of the second generation and reveals how she came to be part of the tales. We see oil become an international commodity, traded on Wall Street and sought from London to Baku to Mesopotamia to Borneo. A baseball subplot compares the growth of the oil business to the growth of baseball, a fascinating reflection of our current president's personal career.

There is an unforgettable image near the center of the story: International oil entrepreneurs talk on a Baku street. This is Trabish at his best, portraying good men doing bad and bad men doing good, all laying plans for wealth and power in the muddy, oily alley of a tiny ancient town in the middle of everywhere. Because Part I was about triumphant American heroes, the tragedy here is entirely unexpected, despite Trabish's repeated allusions to other stories (Casey At The Bat, Hamlet) that do not end well.

In the final section, World War I looms. Baseball takes a back seat to early auto racing and oil-fueled modernity explodes. Love struggles with lust. A cavalry troop collides with an army truck. Here, Trabish has more than tragedy in mind. His lonely, confused young protagonist moves through the horrible destruction of the Romanian oilfields only to suffer worse and worse horrors, until--unexpectedly--he finds something, something a reviewer cannot reveal. Finally, the question of oil must be settled, so the oil industry comes back into the story in a way that is beyond good and bad, beyond melodrama and tragedy.

Along the way, Trabish gives readers a greater awareness of oil and how we became addicted to it. Awareness, Paul Roberts said in THE END OF OIL, "...may be the first tentative step toward building a more sustainable energy economy. Or it may simply mean that when our energy system does begin to fail, and we begin to lose everything that energy once supplied, we won't be so surprised."

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